The problem and Walras's solution

A review of the problem

It has been seen in Chapter 5 that Walras explained, in reference to reality and to his mature comprehensive model (see, for example, 123, 1877, pp. 253, 255; 176, 1889, pp. 235, 238, 294; § 209, p. 315; § 212, p. 319; § 258, p. 401), that production and exchange occur at disequilibrium prices, varying as prices change during the course of the adjustment of the markets toward their equilibrium set of variables. In the model, holdings of goods and money are parameters for individual static supply and demand functions. Disequilibrium transactions alter the distribution of goods and money, resulting in changes in those functions. Disequilibrium production alters the amounts of goods and hence the holdings of goods, and thus also changes supply and demand functions. Walras came to realize with increasing clarity that those disequilibrium phenomena create a problem for the logical structure of his work, considered in relation to his equation system. Inasmuch as the equations of supply and demand have parameters that are actually endogenous variables in the model, their solutions – prices, rates of employment of resources, incomes, outputs, and quantities traded – are not the values toward which the model actually converges. The mature comprehensive model is therefore non-virtual in disequilibrium as well as in regard to what takes place when the equilibrium prices are quoted.